The role of directors and secretaries

This note is a snapshot guide and should be read in conjunction with the relevant legalisation or subject to professional advice.

Limited Companies

A limited company is in law a separate entity that is regarded as a legal person in its own right. A company can enter into agreements, purchase property and is separate in law from the people who run it.

Directors of the company will have limited liability if the company fails. This means that if the company goes into liquidation the owners of the company (the shareholders) will only be required to pay the debts they have agreed to pay.

A limited company may be established through our own firm either providing a name off the shelf or a name you choose yourself subject to that name not already being used by another company. Further, there are dangers in using a name too similar to another "companies name" if there could be a danger of you being regarded as trading off the other "company reputation".

If a company is no longer required it can go into voluntary liquidation or an application can be made for it to be struck off the register.

The company director:

Within reason any person may become a company director. There are few major restrictions:

• The person must not have been disqualified by a court from acting as a company director
• The person must not be an undischarged bankrupt.

(both 1 and 2 may be overridden with leave of the court)

• If the company is a plc anybody over the age of 70 may be a director (from 6th April 2007 maximum age for directors of plc was waived).
• A person must be mentally competent and of sufficient age to understand and obligations and responsibilities being entered into.

In addition, at least one director must be an individual. Companies who only had corporate directors on or before 6 November 2006 have until 1 October 2010 to appoint such a director.

Every company director is personally responsible to ensure that certain statutory documents are sent to the Registrar of Companies at Companies House when they are required to do so. There are certain prime requirements which include:

• accounts must be submitted for limited companies.
• an annual return form must be submitted
• if directors or secretaries or their particulars change Companies House must be notified
• if the registered office changes Companies House must also be notified.

Failure to file annual returns or accounts is regarded as a criminal offence. Any director found to be responsible could be liable to a fine of up to £5,000 for each offence and will have a criminal record.

Alternatively, if the Registrar of Companies believes the company is no longer working or operating it could be struck off the register and dissolved. If this happens any assets of the company, including bank accounts or property would become the property of the Crown.

Prosecutions do occur and it is important that statutory requirements are complied with.

If accounts are delivered late there will automatically be a late filing penalty imposed by Companies House. There may be further fines imposed by a court. Automatic fines range from £150 to £1500 for a limited company and £750 to £7500 for a public limited company (plc). You usually have 9 months from the accounting reference date to submit accounts if you are a limited company or 6 months if you are a plc.

It is important to remember that your professional advisers i.e. accountants, may be instructed to prepare accounts for you and return them. However, the responsibility and liability remains with the Directors. It is therefore the Directors' responsibility to ensure that all the necessary information to prepare accounts and when required to get them audited is provided to the accountant in sufficient time. If there are worries about the time period accountants or other financial advisers should be chased. It is not an accountant's responsibility to file accounts. It is the responsibility of the directors.

If accounts are delivered late

As a director of a private limited company, you normally have a maximum of 9 months from the accounting reference date in which to deliver your company's accounts to the Registrar. The accounting reference date is the date to which your accounts must be prepared.

As a director of a public limited company, you normally have a maximum of 6 months from the accounting reference date in which to deliver your company's accounts to the Registrar.

Important if your company's first accounts cover a period of more than 12 months, they must reach Companies House within 21 months of the date of incorporation for private companies and 18 months for public companies.
If accounts are received late, the company will automatically be charged a 'late filing penalty'. The late filing penalty will be calculated according to the following scale:

 

The company secretary

Since 6 April 2008, private limited companies have not been obliged to appoint a company secretary unless the company's articles contain a reference to the company having a secretary. However, existing private limited companies may retain a company secretary if they wish and newly established companies can opt to appoint one.

The secretary of a private limited company needs no formal qualifications. However, a secretary of a public limited company must be qualified or have the proper knowledge and experience to carry out the functions of a company secretary. In addition, the secretary must also be a person who:

• is a member of any of the following bodies:
  the Institute of Chartered Accountants in England and Wales (the ICAEW);
  the Institute of Chartered Accountants of Scotland (the ICAS);
  the Institute of Chartered Accountants in Ireland (the ICAI);
  the Chartered Association of Certified Accountants (the ACCA);
  the Institute of Chartered Secretaries and Administrators (the ISCA);
  the Chartered Institute of Management Accountants (the CIMA);
  the Chartered Institute of Public Finance and Accounting (the CIPA); or
• held the office of secretary (or assistant or deputy secretary) of the company on 22 December 1980; or
• held the office of company secretary of a company (except a private company) for at least 3 out of the 5 years immediately before his or her appointment as secretary; or
• is a barrister, advocate or solicitor called or admitted in any part of the UK; or
• is a person who appears to the directors to be capable of carrying out the functions of company secretary, because he or she holds, or has held, any other similar position or is a member of any other body.

Special duties

The secretary is an officer of the company  andthey may be criminally liable for defaults committed by the company. For example failure to file - in the time allowed - any change in the details of the company's directors and secretary, and the company's annual return.

Rights of company secretary

The secretary has the right to sign many company’s forms.

The legislation does not set out the role of the company secretary; this is normally contained in their contract of employment. However, the company secretary might normally undertake the following:

• maintaining the statutory registers;
• ensuring that the company files statutory information promptly;
• providing members and directors with notice of meetings;
• providing members with proposed written resolutions and auditors with any resolutions it has passed;
• delivering copies of resolutions and agreements to Companies House;
• supplying a copy of the accounts to every member of the company, every debenture holder and every person who is entitled to receive notice of general meetings;
• keeping, or arranging for the keeping of copies of all members’ resolutions (passed other than at general meetings), and minutes of all proceedings and general meetings;
• ensuring that people entitled to do so can inspect company records;
• custody and use of the company seal (if the company chooses to have one);
• be a co-signator for execution of a document by a company; and
• authenticating forms for submission to Companies House (a company secretary cannot authenticate the company’s annual accounts)

Forms required during the operation of a company

There are numerous forms which may require to be filed at Companies House but the principal ones include the following:

Accounts

All limited companies, whether trading or not, must keep accounting records and file accounts for each accounting period with the Registrar. There are various exemptions that may be claimed but in general accounts must include the following:

• Directors report signed by a director or company secretary
• A balance sheet signed by a director
• A profit and loss account
• An auditors report signed by the auditor
• Notes to the accounts
• Group accounts if applicable

Directors are personally responsible to ensure accounts are prepared and delivered to Companies House. Failure to do so may result in a criminal conviction.

Annual Returns

An annual return is a form showing at the date it is prepared who the directors are, who is the secretary, location of the registered office, the identity of shareholders and the total share capital. These are sent out in a pre-prepared form which needs to be checked carefully before being returned.

Registered Office

Every company must have a registered office address. It is the legal home of the company to which any official notices, court papers, documents or other papers will be sent. It must be a physical location and not simply a post office box. People need to be able to deliver documents there by hand on occasions and may have the right to inspect the company's records.

Change of accounting reference date - Form AA01 

Every company has an accounting reference date, which is the date to which the company's accounts are prepared each year. This date can be changed using Form AA01.

Change of directors and secretary and their details

Forms AP01, AP02 and AP03 ARE used for the appointment of an officer of a company;
Forms TM01 and TM02 used for an officer ceasing to act (resignation, removal, death etc).
Forms CH01, CH02 and CH03 used for a change in details of an officer, for example, a change of name or new residential address.
All changes to directors' and secretary's details must be sent to the Registrar within 14 days of the change.

Allotments of shares - Form SH01 

This form should be sent to Companies House within 28 days of the shares being allotted.

Resolutions 

Copies of any special or extraordinary resolutions and certain types of ordinary resolutions, need to be sent to Companies House within 15 days of them being passed by the company. When a resolution alters the memorandum or articles of a company, a copy of the amended document must also be sent in at the same time as the resolution.

Mortgages and charges

Details of any mortgage or charge created by the company must be sent to Companies House within 21 days.

Quality of documents 

What happens to documents sent to Companies House? 

The documents and forms you deliver to Companies House are scanned to produce an electronic image. The original documents are then stored, and the electronic image is used as the working document.

When your business contacts view the company record, they see the electronic image reproduced on-line. So it is important not only that the original is legible, but that it can also produce a clear copy.

This is a few quality guidelines to follow when preparing a document for filing at Companies House.

The form, authentication and manner of delivery of information

From 1st October 2009, Part 35 of the Companies Act 2006 gives the registrar of companies a range of powers. These include powers to decide on the form and manner in which companies must deliver documents, what is needed for a document to be properly delivered, provision of electronic delivery for certain documents, and amendments to the register.

The powers which relate to the delivery of information define how the company information will look, how it can be authenticated and how it should be submitted. This sets out the requirements companies must meet when sending documents, for example signatures, fees etc. If companies fail to meet these requirements the registrar will normally reject the document. However in some circumstances he may decide to accept a document even if it has not been properly delivered and mark as ‘’incomplete’’. The registrar may decide to take further action after registration, e.g. following a complaint by a third party. The registrar would send letters to the company asking them to file a document that complies with the proper delivery requirements. If they fail to respond, he may ultimately send a notice to the company giving 14 days to file a document that complies with the proper delivery requirements. Initially the registrar can write to the company inviting them to file a replacement or additional documents to correct the inconsistency. If the company does not comply, the registrar ultimately has the power to issue a formal inconsistency notice to the company requiring delivery of any replacement or additional documents. If the company fails to comply with the notice, the company and every officer is guilty of an offence and liable on conviction to a fine.

Annotation of the register

Companies sometimes by mistake submit more information than they need, e.g. internal tax computations that do not form part of the statutory accounts. Depending on when we notice the extra information, and whether we can readily separate it from the original document, the registrar can deal with this is different ways.

If we cannot readily separate the unnecessary material from the original document the registrar will normally reject the document.
If the material is obvious and easy to separate, e.g. an extra page, we will normally remove the unnecessary material and register the document.

If the material is not noticed and registered, it can be dealt with in the future by the administrative removal procedure.

The registrar may accept a document to replace one previously delivered only if it:

• did not meet the requirements of proper delivery or,
• contained unnecessary material

Only the person or the company that delivered the original document can deliver the replacement document, which must be accompanied by a replacement document form (yet to be defined), required to link the replacement document with the original.

The registrar has new powers to put notes on the register to inform searchers of changes. The annotation must record:

• the date a document was delivered
• the date of the replacement document and the fact it has been replaced
• the date material was removed, under what power and a description of the material.

The registrar can decide whether or not to remove the original document, and will judge each case on its individual merits.

Rectification of the register

Rectification is a new process to remove material from the register in certain circumstances, i.e.

• material that’s invalid or ineffective or that was produced without the authority of the company, or
• arose from something that was factually inaccurate or forged.

Rectification allows the registrar to deal with company hijacks and other false filings. There were no powers under the 1985 Act that enabled the registrar to remove documents, except via a court order.

The appointment, removal and change of particulars of directors and secretaries and change of registered office address is covered under the rectification process.

The registrar can administratively remove from the register unnecessary material or a document that has been replaced.

Before removing any material, the registrar must give notice to the person who delivered the material or the company that it relates to. The notice must be dated and state what material is to be, or has been, removed.

Material that can not be removed includes:

• incorporation documents
• change of company name
• re-registration
• becoming or ceasing to be a Community Interest Company
• reduction of share capital
• change of registered office
• registration of a charge
• dissolution

This process does not cover requests for rectification of the register.

The registrar must keep paper documents for 3 years, after this time they can be destroyed as long as there is a copy of the information contained in them. Previously under the Companies Act 1985 this was 10 years.

Once a company has been dissolved for 2 years the Registrar may direct that the records relating to it may be removed to the Public Record Office who are then responsible for keeping the documents in accordance with their own rules.

How should documents be set out? 

Every document delivered to the Registrar must state in a prominent position the registered number of the company, and must comply with any requirements specified by the Registrar relating to the legibility of that document.

Briefly, documents should be on A4 size, plain white paper normally between 80gsm and 100gsm in weight with a matt finish. Text should be black, clear, legible, and of uniform density.

When you fill in a form:

• use black ink or black type;
• use bold lettering (some elegant thin typefaces and pens give poor quality copies);
• don't send a carbon copy;
• don't use a dot matrix printer; and
• remember - photocopies can result in a grey shade that will not scan well.

When you complete other documents, please remember:

• the points already made relating to completing forms;
• to use A4 size paper with a good margin;
• to supply them in portrait format (that is with the shorter edge across the top);
• to include the company number in the top right-hand corner of the first page.

Important: coloured ink can drop out (disappear) when a document is scanned to produce an image. To prevent this - always use black ink to complete and sign all documents.

What are the most common problems to avoid? 

Glossy accounts
If you are producing colour-printed glossy accounts, please save them for your shareholders and others who will appreciate them. We still need black on white with a matt finish. A typed unbound version or printer's proof is ideal, provided it has the necessary signatures.